TaxTMI 
TaxTMI 
2025 (4) TMI 1244
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............. 7 Submissions ...................................................................................................... 8 Issues .............................................................................................................. 10 Notice Invoking Arbitration under Section 21 of the ACA ................................ 10 Appointment of Arbitrator by the Court under Section 11 ............................... 15 Source of the Arbitral Tribunal's Jurisdiction and Relevant Inquiry under Section 16 ..............................................................................................20 Returning to the Facts of the Case .................................................................. 24 High Court Decisions on these Issues ............................................................. 26 Whether Respondent Nos. 2 and 3 are Parties to the Arbitration Agreement.. 32 Summary of Conclusions ................................................................................. 38 1. Leave granted. 2. The issues arising in the present appeal are whether the service of notice ....
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....fter "LLP" by the name of Vishal Capricorn Energy Services LLP, which is respondent no. 2 herein, to carry out various oil and gas sector projects. It is relevant to note at this stage that only the appellant and respondent no. 1 are signatories to the LLP Agreement. Clause 8 of the LLP Agreement provides that Mr. Kishore Krishnamoorthy, who is respondent no. 3 herein, shall be designated as the Chief Executive Officer of the LLP and will be responsible for administration of business and looking after the execution of contracts. It is relevant that respondent no. 3 is also a director of respondent no. 1 company. Further, Clause 40 of the LLP Agreement provides for dispute resolution through arbitration in the following terms: "40. Disputes or differences, if any, that may arise between partners inter se and/ or between the partner(s) and LLP hereto or their affiliates, assigns, successors, attorneys, administrators and all those claiming through it touching these presents or the construction thereof or any clause or thing herein contained or otherwise or in any way relating to or concerning these presents or the rights, duties or liabilities of any of the partners hereto i....
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....ation is not maintainable against respondent nos. 2 and 3 as they were not parties to the notice invoking arbitration under Section 21 or the application for appointment of arbitrator under Section 11. Further, it was contended that the arbitration agreement contained in Clause 40 of the LLP Agreement does not bind respondent no. 2, which is itself a creature of the LLP Agreement, and respondent no. 3 as he was not a party to the LLP Agreement in his individual capacity. 3.4 In the meanwhile, the appellant preferred an application under Section 23(3) of the ACA to amend the statement of claim in order to bring on record a detailed memo of parties and to amend the prayer clause to include respondent nos. 2 and 3 as well. The appellant's application for amendment was allowed by the arbitral tribunal's order dated 01.08.2023 on the ground that these are ministerial amendments that do not change the averments in the original statement of claim. 4. Arbitral Tribunal's Decision on the Section 16 Application: By order dated 15.02.2024, the arbitral tribunal allowed the application under Section 16 and held that the arbitral proceedings against respondent nos. 2 and 3 are not maintai....
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....e under Section 21 being issued to them does not bar the appellant from impleading them in the arbitral claim as they had constructive notice through respondent no. 1 upon whom such notice was served. 6.2 Mr. Kanwal, on the other hand, has submitted that the issue for consideration is not the arbitral tribunal's jurisdiction to implead a non-signatory. Rather, it is whether a person/entity that has not been served with a notice under Section 21, and has not been referred to arbitration by the court under Section 11 of the ACA, can be made a party to the arbitral proceedings. His submissions are as follows: First, this Court's decision in Cox and Kings (supra) is not applicable to the facts of the case, and has rightly been distinguished as neither the arbitral tribunal nor the High Court have found that respondent nos. 2 and 3 are necessary parties for effective adjudication of disputes. Second, that respondent nos. 2 and 3 are not bound by the arbitration agreement as they are not parties to the same. Third, that the proceedings against respondent nos. 2 and 3 are contrary to principles of natural justice as they were not served with any notice or impleaded in the Section 11 ap....
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....tion 43(2) provides that for the purpose of the Limitation Act, an arbitration shall be deemed to have commenced on the date referred to in Section 21. Hence, the date of receipt of the Section 21 notice is used to determine whether a dispute has been raised within the limitation period as specified in the Schedule to the Limitation Act, as held by this Court in Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC 288, paras 26, 29 and State of Goa v. Praveen Enterprises (2012) 12 SCC 581, paras 16, 18. 10.2 Second, the date of receipt of notice is also relevant to determine the applicable law to the arbitral proceedings. This can be understood in two senses: (i) When the arbitral proceedings are governed by a law that is different from the proper law of the contract, the governing law applies only after the arbitral proceedings have commenced, as held in Milkfood Ltd (supra) Milkfood Ltd (supra), para 31. And, (ii) Section 85(2)(a) of the ACA provides that the Arbitration Act, 1940 and Foreign Awards (Recognition and Enforcement) Act, 1961 will apply to arbitral proceedings that commenced prior to the ACA coming into force, unless otherwise agreed by the parties. Hence, t....
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....ey cannot be impleaded as parties to the arbitral proceedings. The relevant considerations for joining them as parties to the arbitration will be discussed at a later stage. 13. At this point, it is important to note this Court's decision in State of Goa v. Praveen Enterprises (supra) wherein it was held that the claims and disputes raised in the notice under Section 21 do not restrict and limit the claims that can be raised before the arbitral tribunal. The consequence of not raising a claim in the notice is only that the limitation period for such claim that is raised before the arbitral tribunal for the first time will be calculated differently vis-a-vis claims raised in the notice. However, noninclusion of certain disputes in the Section 21 notice does not preclude a claimant from raising them during the arbitration, as long as they are covered under the arbitration agreement. Further, merely because a respondent did not issue a notice raising counter-claims, he is not precluded from raising the same before the arbitral tribunal, as long as such counter-claims fall within the scope of the arbitration agreement. Praveen Enterprises (supra), paras 19-20, 26. 14. A similar r....
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....th the clear wording of Section 11(6), evidences that the purpose of this application is for the court to take "necessary measure", in the absence of any other means in the arbitration agreement, "for securing the appointment" of the arbitral tribunal. By constituting the arbitral tribunal when there is a deadlock or failure of the parties or the appointed arbitrators to act as per the arbitration agreement, the court only gives effect to the mutual intention of the parties to refer their disputes to arbitration. Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, In re, (2024) 6 SCC 1, para 150; SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, para 122. 17. It is also relevant to note that while deciding such an application under Section 11(6), the High Court or this Court, as the case may be, undertakes a limited examination as per Section 11(6A). The court's jurisdiction is confined to a prima facie examination, without conducting a mini-trial or laborious and contested inquiry, into the existence of the arbitration agreement, i.e., whether there exists a contract to refer disputes that have arisen....
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....rbitral Tribunal under Section 16." (emphasis supplied) Therefore, the determination of whether certain persons are parties to the arbitration agreement, and consequently, whether they can be made party to the arbitration proceedings, is left to the arbitral tribunal. While the Section 11 court can return a prima facie finding on this issue, the same does not bind the arbitral tribunal, which must decide the issue based on evidence and the applicable legal principles. Also see Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147, para 75. The determination of this issue goes to the very root of the arbitral tribunal's jurisdiction, and hence, is covered under Section 16 of the ACA. ibid, paras 73, 76.7. 19. It is also relevant to take note of this Court's decision in Praveen Enterprises (supra), wherein it held that when a court appoints the arbitral tribunal under Section 11, the arbitral tribunal's terms of reference are not restricted to specific disputes referred by the court, unless the arbitration agreement itself requires the court to formulate and refer disputes to arbitration. Praveen Enterprises (supra), paras 28-29. Also see Bharat Petroleum Corp....
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....rd of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract." 23. Once a person consents to refer disputes to arbitration, and enters into an arbitration agreement under Section 7, he is bound by the same. The implication of being a party to the arbitration agreement is that such person has contractually undertaken to resolve any disputes referenced in the arbitration agreement through the agreed upon method of dispute resolution, i.e., arbitration. It is under this contractual obligation that a person can be impleaded as a party to the arbitral proceedings, even if he was not served with a Section 21 notice and not referred to arbitration by the court under Section 11. 24. As briefly stated above, the determination of who is a party to the arbitration agreement falls within the domain of the arbitral tribunal as per Section 16 ....
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....s into such arbitrations... the parties' joint acceptance of a single dispute resolution mechanism, to deal with disputes under a single contractual relationship, reflects their agreement on the possibility of a unified proceeding to resolve their disputes, rather than necessarily requiring fragmented proceedings in all cases." Further, in jurisdictions where there is no provision in the national arbitration statute authorising the courts to consolidate arbitrations or to join parties, it is left to the arbitral tribunal to determine this issue at the first instance. ibid, 2788-2789. 26. Therefore, as per the legal principles under the ACA as well as in international commercial arbitration, it is a foundational tenet that the arbitral tribunal's jurisdiction is derived from the consent of the parties to refer their disputes to arbitration, which must be recorded in an arbitration agreement. The proper judicial inquiry to decide a jurisdictional issue under Section 16 as to whether a person/entity can be made a party to the arbitral proceedings will therefore entail an examination of the arbitration agreement and whether such person is a party to it. If the answer is in the affir....
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....No.2 and 3 without serving upon them a notice under Section 21 of the A&C Act, 1996 which admittedly was never served upon them and as such the Arbitral proceedings initiated by the Claimant against them are unsustainable. 9. The objection raised by Respondents No.2 and 3 / Applicants in the present proceedings against them is also on the ground that they were never made a party to Section 11 A&C Act, 1996 proceedings and the High Court while making a reference and appointing the undersigned as an Arbitrator had only Respondent No. 1 before it. It is argued that there is no reference qua Respondents No.2 and 3 by the High Court of Delhi and as such the present proceedings against them are void and illegal. As already discussed above the principle of competence-competence is not applicable to the Respondents No. 2 and 3 at this stage. The absence of any reference qua them by the High Court under Section 11 of the A&C Act, 1996 renders these proceedings against them void-ab-initio and as such they cannot be proceeded against by this Tribunal." 28. The arbitral tribunal's approach clearly shows that it did not exercise its jurisdiction in accordance with the principle of k....
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....with the decision insofar as holding that the notice under Section 21 is mandatory, unless the contract provides otherwise, we do not agree with the conclusion that non-service of such notice on a party nullifies the arbitral tribunal's jurisdiction over him. The purpose of the Section 21 notice is clear - by fixing the date of commencement of arbitration, it enables the calculation of limitation and it is a necessary precondition for filing an application under Section 11 of the ACA. The other purposes served by such notice - of informing the respondent about the claims, giving the respondent an opportunity to admit and contest claims and raise counter-claims, and to object to proposed arbitrators - are only incidental and secondary. We have already held that the contents of the notice do not restrict the claims, and any objections regarding limitation and maintainability can be raised before the arbitral tribunal, and the ACA provides mechanisms for challenging the appointment of arbitrators on various grounds. Hence, while a Section 21 notice may perform these functions, it is not the primary or only mechanism envisaged by the ACA. 30.3 In this light, and considering that in ....
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....that the reasoning in Arupri Logistics (supra) is in line with what we have held hereinabove, i.e., the jurisdiction of the arbitral tribunal to implead a person depends on whether such person is a party to the arbitration agreement. 33. Finally, we must refer to the Bombay High Court's decision in Cardinal Energy & Infra Structure (P) Ltd. v. Subramanya Construction & Development Co. Ltd. 2024 SCC OnLine Bom 964, which has a similar factual matrix as this case. The petitioners therein were not served with the Section 21 notice or made party in the Section 11 proceedings. Rather, they were impleaded by the arbitral tribunal after it had framed issues, upon an application by respondent nos. 1 and 2 therein. In a Section 34 application against the arbitral award, the High Court considered the issue of whether the petitioners therein, who were non-signatories to the arbitration agreement, could have been impleaded without them being referred to arbitration in the order under Section 11. By referring to Cox and Kings (supra), the relevant portion of which we have extracted hereinabove, the High Court held that the arbitral tribunal has the power to decide whether a non-signatory is ....
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....tration agreement in Clause 40. In this light, we are required to examine whether respondent nos. 2 and 3 are parties to the arbitration agreement. 36. In Cox and Kings (supra), this Court held that non-signatories are parties to the arbitration agreement if the conduct of the signatories and non-signatories indicates mutual intention that the latter be bound by the arbitration agreement. Cox and Kings (supra), paras 116, 120, 123, 126 (Chandrachud, J) The test to determine whether such a non-signatory is a party is as follows: "132. We are of the opinion that there is a need to seek a balance between the consensual nature of arbitration and the modern commercial reality where a non-signatory becomes implicated in a commercial transaction in a number of different ways. Such a balance can be adequately achieved if the factors laid down under Discovery Enterprises are applied holistically. For instance, the involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect. Other factors such as the composite nature of transa....
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....on agreement with the non-signatory. In this inquiry, the fact of a non-signatory being a part of the same group of companies will strengthen its conclusion. In this light, there is no difficulty in applying the Group of Companies doctrine as it would be statutorily anchored in Section 7 of the Act. 230.1. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or Arbitral Tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle." 37. In this case, Clause 40 of the LLP Agreement (extracted hereinabove) is expansive in its wording. It covers disputes arising between the partners inter se each other, and between the partne....
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.... the LLP Agreement, it is clear that they have also agreed to be bound by the arbitration agreement contained in Clause 40 therein. Since they are parties to the underlying contract and the arbitration agreement, the arbitral tribunal has the power to implead them as parties to the arbitration proceedings while exercising its jurisdiction under Section 16 of the ACA and as per the kompetenz-kompetenz principle. 40. Summary of Conclusions: Our legal analysis of the issues that we set out above, as well as our findings in the facts of the given appeal, can be stated as follows: I. A notice invoking arbitration under Section 21 of the ACA is mandatory as it fixes the date of commencement of arbitration, which is essential for determining limitation periods and the applicable law, and it is a prerequisite to filing an application under Section 11. However, merely because such a notice was not issued to certain persons who are parties to the arbitration agreement does not denude the arbitral tribunal of its jurisdiction to implead them as parties during the arbitral proceedings. II. The purpose of an application under Section 11 is for the court to appoint an arbitr....